Thursday, December 8, 2011

Understanding the Payroll Tax Cut Extensions

Here is a great short video from CNN on understanding the payroll tax cuts and extensions.
I'm writing this while I continue to sit on the fence about whether or not the payroll tax cut extensions are worthwhile. It is only up to 2% of a working person's income, or as CNN puts it, roughly $1000 a year, spread out over the full year. Many working people may not even realize they are getting roughly $80-100 a month more in their paychecks. We all like to think we notice these things, but do we really?
Now, in theory, the government is hoping that that extra 2% is going back into the economy.

It seems to me that there are 2 types of "Americans" in question here. The first- the person who pays down their debts first, and then addresses their necessities and luxuries. The second is the person who makes sure their necessities (food, phone bill, utilities, rent) are paid for first, and then divides up the remainder over their debts. (We could also call this group Dave Ramsey fans.)
The second person may probably have to go further into debt, or have to stay in debt longer, but at least knows there will be food on the table. But the second person, who is going more into debt, but in theory is also putting more back into the economy, is the type of person the supporters of the payroll tax cut extensions, hopes that you are.

Again, in theory, paying down our consumer debts is what helps the individual American more in the very long run. And then eventually, helps the economy when your debt is paid off and your freed up money goes into the economy.
But back to the payroll tax cuts extensions. Is the 2% better put to use by going to the American consumer pockets? Or is it better used in the form of a tax collected by the government to pay down the government's debt? The longer the federal government is in debt, the harder the economy will continue to be on individual Americans.
So which should it be? $80 more a month to Americans? Or paying down the federal debt?
When deciding which it should be, ask yourself if you have even noticed the extra money, and which type of consumer and spender you really are!
Is the answer to our problem really payroll tax cut extensions? Or is it in the need for more job growth and creation?
All I know is that $80 a month isn't making or breaking the economy. Yes, it can help the tightest of budgets. But those same budgets would also be saved by lower prices, and a better economy overall. And for that to happen, we need more job creation so that those people who don't have an income at all can start earning and spending again in the thousands of dollars, not just $80.

No comments:

Post a Comment

Your comments are always welcome here!